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How Microsoft Wound Up In Justice's Lap

September 26, 1993

Information Processing

HOW MICROSOFT WOUND UP IN JUSTICE'S LAP

Soon, the Justice Dept. is expected to decide whether to pursue a civil antitrust suit against Microsoft Corp. After a three-year probe by the Federal Trade Commission involving hundreds of depositions and millions of documents, the case is already the biggest antitrust probe in more than a decade. If Justice proceeds, it could reshape a vital industry and redefine antitrust policy for the Information Age.

Or the case could once again be caught up in the politics of Washington and Silicon Valley and fall into the time warp of the federal bureaucracy. Certainly, the history of the FTC probe could serve as a cautionary tale of slow-moving bureaucrats trying to regulate a fast-moving industry. In pursuing Microsoft, the FTC wasted its first year trying to prove collusion with IBM--even though the two companies had almost stopped speaking.

As for politics, Justice Dept. officials don't have to wait. Even before the FTC prepared for its final July 21 vote, two members of the Senate Judiciary Committee announced that if the commissioners deadlocked again, as they had in February, the case should be handed over to Justice. One was Senator Howard M. Metzenbaum (D-Ohio). The other was Orrin G. Hatch (R-Utah), home of Microsoft nemesis Novell Inc. Gates asks, rhetorically: "Orrin Hatch comes from what state? Who [do you think] talked to him?" Noorda did call the senator's office to thank him, a Hatch aide says.

REDUCED CHARGES. From the start, the FTC probe hit snags. First, the Justice Dept. was reluctant to give permission to FTC staffers to take on such a high-level probe, taking six months to give the green light. The next hang-up was by FTC commissioners, who took six months to give staffers the powers to issue subpoenas.

Despite delays and unfamiliarity with of the computer industry, by late 1992 the staff had what it thought was a strong case--centered on charges that Microsoft appeared to make its software incompatible with rival products and uses a particular discount scheme to freeze out competitors. So confident were FTC staffers that they took the unprecedented step of recommending an immediate injunction against Microsoft while a court case was prepared.

But the politics of the commission may have predetermined the deadlock: Two commissioners favor tough enforcement, two are laissez-faire types, and the potential tie-breaker, Roscoe B. Starek III, recused himself, citing an undisclosed financial conflict. The commissioners did agree to a second review, and the staff scrambled to streamline its case. "Instead of charging them with murder, kidnapping, and rape, we just chose kidnapping," says a staffer.

As the July vote neared, Gates met with the FTC commissioners. He found a soul mate in Deborah K. Owen, a conservative who seemed sympathetic. But he didn't get along nearly as well with the others. When one suggested that Microsoft could be more cooperative by previewing its programs for rivals, Gates, says an FTC staffer, retorted sarcastically: "Sure if you want to be a Communist about it, we could do that." Gates won't confirm the comment, but says he grew impatient. "I did seem to think that was rather socialistic," he recalls.

After the second FTC deadlock, it was a short trip to Justice. Anne K. Bingaman, the new antitrust chief, had called the FTC commissioners in July to see if they would relinquish the case. One, who wanted the issue to die, angrily told Bingaman that she had no right to take over. But Bingaman persisted. "We, in effect, could act as the fifth commissioner," she says. And Mary Lou Steptoe, director of the FTC's Bureau of Competition, did her part. Under law, an attorney in her office had the authority to pass the case to Justice, unless the FTC revoked that power. In late July, she informed the commissioners of her intention to do so within 24 hours. Owen attempted to force a vote, but couldn't muster a second.

What will Justice do? It should decide by October whether to pursue a serious probe, says a senior official there. If the evidence warrants, Bingaman could bring charges by as early as February or March. But if Justice can't move quickly, the issue will again be consumed by the infighting in both the software industry and in Washington. Mark Lewyn with Catherine Yang, in Washington